Investors see big returns as Airbnb takes off in Japan

Last month, the manager of Airbnb Japan told Bloomberg News that Japan is the accommodation service’s fastest-growing market, and that he hoped to work with local governments to make regulations more amenable to Airbnb’s concept of property owners renting out residences to visitors.

Although the number of travelers using the service in Japan increased in the past year by more than 500 percent, and the number of listings by more than 370 percent, Japan is still behind other countries where Airbnb is available, with only 21,000 rooms listed. Consequently the service, which allows members to connect directly with people who want to let rooms on a short-term basis, is seen as being a possible solution to two ongoing problems in Japan: the shortage of hotel rooms in the face of a startling rise in foreign tourist numbers, and the steady increase in vacant houses and apartments.

The trouble is that the shortage of accommodations is mainly in large cities where vacant housing isn’t as prevalent as it is elsewhere in Japan. If you look up some of those 21,000 Japanese properties currently listed on Airbnb, many are in places that few tourists visit.

Technically Airbnb is illegal, since the Hotel Business Act (ryokan gyōhō) sets conditions for commercial activities related to overnight stays, and most Airbnb properties don’t follow these conditions. For instance, commercial accommodations are supposed to have front desks. However, that obviously hasn’t stopped people from renting out their rooms to strangers, and for the most part the authorities have looked the other way. It’s not just that they see it as a convenient, perhaps temporary solution to the above-mentioned problems; it also offers investment possibilities.

A recent feature in Harbor Business Online described a 36-year-old man called, pseudonymously, Mr. Tanaka, who owns five condominium units in Tokyo. One is a 38-year-old, 30-sq.-meter one-room apartment in Shinjuku that he purchased for ¥10 million. The market rate for the unit as a rental is ¥80,000 a month, but he rents it out to Airbnb members and makes an average of ¥410,000 a month. After subtracting expenses and loan payments, he enjoys a return on investment of 25 percent a year.

As with many businesses, success is all about location. Hotels in Tokyo, Osaka and Kyoto are regularly operating now at 90 percent occupancy rates, and since they charge premium prices, Airbnb units are becoming extremely popular, especially among Asian visitors who aren’t necessarily into amenities. All they care about is a room that is centrally located so that they can shop and sightsee at their leisure. Tanaka told the website that the nearest hotel to the aforementioned apartment charges ¥18,000 a night per person. He charges ¥10,000 for the first person and ¥2,500 for each additional guest, so five people could theoretically stay there for the price of one person in the city hotel, though obviously it would be pretty cramped.

Tanaka is in it for the investment, and understands that there is an inherent risk in sinking all his money into Japanese properties. Though the central government seems to be leaning toward more liberalized regulations regarding minpaku (private residences that take lodgers) by allowing them to operate within “special districts,” such as Ota Ward near Tokyo’s Haneda Airport, local governments may be under pressure from residents and conventional commercial lodgings. In Kyoto, for instance, travel agents who offer minpaku services have been put on notice by the authorities, who say they are in danger of being cited and penalized.

Tanaka is reducing his risk by investing in properties in Thailand, where the occupancy rates are even higher than those in central Tokyo. He has bought several apartments in Bangkok. In one building, in fact, he isn’t the only Japanese landlord. The return on investment is less than it is for the Shinjuku apartment — between 3 and 8 percent — but it’s more guaranteed for the long term. As a tourist destination, Thailand has always been reliable. Tokyo is only a sure thing up until the Olympics in 2020. After that, it may be time to sell — if, in fact, he can find a buyer. Moreover, there are no property taxes in Thailand and property values are steadily rising, at about 3 percent a year. So even if revenues fall, he can always sell the apartment for a profit.

And just as Tanaka is expanding his business to Thailand, there are many non-Japanese investing in Japanese properties to take advantage of the popularity of Airbnb. An article in the weekly magazine Aera describes another apartment building in Shinjuku with about a dozen units, several of which are rented by a Chinese man who told the real-estate agent that he was going to use them as company housing for employees from Hong Kong on temporary transfer to Tokyo. However, the owner of the building increasingly noticed a variety of foreigners on the premises and once ran into a non-Japanese person who had come to clean some rooms. Eventually, the owner discovered that the Chinese gentleman, or the person he represented, was renting out the rooms to travelers via Airbnb. The other tenants were alarmed and threatened to move, and it took the owner and the real estate company months to have the rental agreements changed.

This sort of money-making scheme is increasingly common. Consequently, condominium owners associations are now incorporating rules in their charters that specifically prohibit Airbnb-style sublets. There are even real-estate firms that specialize in finding such rental properties for investors. Some tack on a surcharge for rental properties where owners allows sublets — the lessee pays 10 percent extra for the rental and can list it on Airbnb, and the landlord thus makes a little more. But if other condo owners or residents in the building object, it can still cause problems.

More ambitious realtors, like Best One, which specializes in selling Japanese properties to Asian investors, are steering customers with means toward the purchase of entire apartment buildings or even single-family homes. Though Japanese people may think Tokyo properties are overpriced, with the low yen factored in they’re cheaper for foreign buyers than similar-size properties in Hong Kong, Taipei or Shanghai. Some are buying luxury condo units on the Tokyo waterfront to use as high-end Airbnb rentals in the short term.

For the long-term they plan on selling the units at a substantial profit — before the Olympics, that is. After the Olympics, all bets are off.

Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see blog.japantimes.co.jp/yen-for-living.

Over-regulation and aversion to foreigners is the story here.
As always, government solution is more regulation and segregation.
Who wants to stay in a ‘gaijin ok here’ zone? Sounds like the Warsaw Ghetto.